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Most salary confusion in Bangladesh comes down to one mistake: people apply overtime, tax, or provident fund to gross salary when the law says basic salary. Get that one thing wrong and every number after it is off.
Here’s the short version. Salary calculation in Bangladesh means adding up an employee’s basic pay, allowances, and any extra earnings like overtime, then subtracting whatever deductions apply, like provident fund or tax, to land on net salary. The exact formula changes from company to company because Bangladesh’s labour law doesn’t force every private employer to use one fixed salary structure. What it does regulate closely is overtime, provident fund, and festival bonus, and we’ll walk through the real rules for each.
One more thing before we start: the Bangladesh Labour (Amendment) Act, 2026 was passed by Parliament in April 2026 and made real changes to maternity leave, provident fund coverage, and union rights. If you’re setting up payroll policy right now, check the current law rather than an older article, including this one a year from now.
Table of Contents
What Is Salary Calculation in Bangladesh?
At its simplest, it’s this:
Basic salary + allowances + extra earnings − deductions = net salary
But that single line hides a lot of variation. What counts as an “allowance,” how overtime is calculated, whether provident fund applies at all, and what gets deducted depend on:
- the employee’s contract and salary structure
- the sector (garment factory, office, field work, and so on)
- whether the employee is permanent, probationary, or contractual
- attendance and leave during the month
- whether the employer runs a provident fund scheme
Bangladesh Labour Act 2006, and the 2026 amendment on top of it, sets minimum protections. It doesn’t hand every company a single salary formula to copy and paste. That’s the writer’s caution worth repeating throughout this guide: treat examples here as illustrations, not universal law.
The Main Components of Salary
Every Bangladeshi salary slip, garment factory or software company, is built from a handful of pieces.
Basic salary. This is the anchor figure. It matters more than any other component because overtime and provident fund are both calculated from basic salary, not gross. Companies typically set basic at 50 to 60 percent of gross pay.
House rent allowance. Usually the second-biggest line item. Many Bangladeshi companies set it as 50 percent of basic salary, but that’s a common practice, not a legal requirement for every private employer.
Medical allowance. A fixed monthly amount meant to cover routine healthcare costs. Amounts vary widely by company and role.
Conveyance allowance. Covers commuting costs. Often a smaller fixed figure than house rent or medical.
Other allowances. Mobile, food, education, or field allowances, depending on the job. None of these are mandatory across the board; they show up because a company’s own salary structure includes them.
Gross salary. The total of all the above, before any deductions. This is the number employees usually see as their “salary” in a job offer, even though it’s not what lands in their account.
If your company hasn’t formalized how these components are set, that’s worth fixing before payroll gets more complicated. A salary structure that defines basic pay, allowance percentages, and rules up front saves a lot of manual recalculation later.
Salary Calculation Formula in Bangladesh
Gross salary
Gross Salary = Basic Salary + House Rent + Medical Allowance + Conveyance + Other AllowancesNet salary
Net Salary = Gross Salary + Overtime + Other Earnings − DeductionsDeductions typically include provident fund, income tax, unpaid leave, and any loan or advance recovery. Not every employee has all four. A junior staffer with no provident fund enrollment and no tax liability might only see an unpaid-leave deduction, if any.
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How to Calculate Monthly Salary in Bangladesh, Step by Step
Step 1: Start with basic salary. This is fixed by the employment contract or the company’s salary structure.
Step 2: Add the allowances. House rent, medical, conveyance, and anything else the company pays monthly.
Step 3: Total it up to gross salary. Basic plus all allowances.
Step 4: Add overtime and any other extra earnings. Covered in detail below, this uses basic salary, not gross, as its base.
Step 5: Work out deductions. Provident fund where the employee is enrolled, income tax where applicable, unpaid absence, loan recovery, anything else lawful.
Step 6: Subtract deductions from the total to get net salary. This is the figure that actually gets paid out.
A Worked Example
Say an employee’s monthly salary structure looks like this:
| Component | Amount (BDT) |
|---|---|
| Basic salary | 20,000 |
| House rent | 10,000 |
| Medical allowance | 2,000 |
| Conveyance | 1,000 |
| Other allowance | 2,000 |
| Gross salary | 35,000 |
This is one illustrative structure, not a statutory template every employer must follow.
Overtime this month: Say this employee worked 10 hours of overtime. Under Section 108 of the Labour Act, overtime is paid at twice the ordinary basic hourly rate. The standard formula divides monthly basic salary by 208 (the typical monthly working hours: 8 hours a day times 26 working days), then multiplies by 2 and the overtime hours worked.
OT rate = (20,000 ÷ 208) × 2 = 192.3 per hour
OT pay for 10 hours = 192.3 × 10 ≈ 1,923Deductions this month: Say this employee contributes 7.5 percent of basic salary to a company provident fund (the Labour Act allows anywhere from 7 to 8 percent), and has no income tax liability this month because annual income falls under the tax-free threshold.
Provident fund deduction = 20,000 × 7.5% = 1,500Final net salary:
Net Salary = 35,000 (gross) + 1,923 (OT) − 1,500 (PF) = 35,423Swap in your own numbers and the logic holds. The order matters more than the arithmetic: gross first, then extra earnings, then deductions.
Basic vs. Gross vs. Net Salary: What's the Difference?
People mix these up constantly, especially when negotiating a job offer.
| Salary type | What it means |
|---|---|
| Basic salary | The core, fixed component of pay. Used as the base for overtime and provident fund calculations. |
| Gross salary | Everything before deductions: basic plus all allowances. |
| Net salary | What actually hits the bank account after deductions. |
A job offer quoting a “gross salary of 35,000” doesn’t mean 35,000 lands in your account. Provident fund and any applicable tax come out first.
How Are Salary Deductions Calculated in Bangladesh?
Provident fund
Under Section 264(9) of the Labour Act, a permanent employee who has completed one year of service contributes between 7 and 8 percent of monthly basic salary to the fund, and the employer must match that contribution. Provident fund isn’t mandatory for every company, but the 2026 amendment expanded the obligation for larger establishments, so more employers now need to set one up. Contractual and temporary staff are generally excluded. Full details are in our guide to provident fund calculation in Bangladesh.
Income tax
For assessment year 2026-27, the general tax-free threshold for individual taxpayers is Tk 375,000 a year, rising to Tk 425,000 for women and senior citizens above 65. Income above that is taxed on a progressive six-tier scale, from 10 percent up to a top rate of 30 percent on income above roughly Tk 3.5 million a year, after this year’s budget removed the old 5 percent starting slab. These figures come from the National Board of Revenue and change with each year’s Finance Act, so treat this as a snapshot rather than something to hardcode into a payroll system. Always check NBR’s current rates before running actual tax deductions.
Absence or unpaid leave
If an employee has no paid leave left and takes an unpaid day off, that day’s pay is deducted, usually calculated from basic salary or gross salary divided by the number of working days in the month, depending on company policy.
Loan or salary advance
Where an employer has extended a salary advance or personal loan, monthly recovery instalments are deducted until the balance is cleared.
Other lawful deductions
he Labour Act permits a limited set of other deductions, fines for misconduct under specific conditions, damage or loss caused by the employee, and similar. Anything outside what the law permits shouldn’t be taken from salary. For the full list, see the Bangladesh Labour Act, 2006.
How Overtime Affects Salary Calculation
Standard working hours under the Labour Act are 8 hours a day and 48 hours a week. Anything beyond that is overtime, paid at double the ordinary basic hourly rate under Section 108. The law caps overtime at 2 hours a day, with total weekly hours (regular plus overtime) not exceeding 60, and the yearly weekly average staying at or under 56.
The garment sector has its own wrinkle: during high-order periods, factories can extend overtime by an extra 2 hours a day, up to 4 hours of overtime daily, still paid at double the basic rate.
The formula, again: divide monthly basic salary by 208 standard hours, multiply by 2, multiply by hours worked. Companies using overtime calculation in Bangladesh as a manual spreadsheet process tend to get this wrong most often by basing it on gross salary instead of basic.
How Festival Bonus Is Calculated
Every worker who’s completed a year of continuous service is entitled to two festival bonuses a year, typically timed around Eid-ul-Fitr and Eid-ul-Adha, and each one is equivalent to one month’s basic salary. Employees with less than a year of service can still receive a bonus depending on company policy, usually prorated based on months worked.
That’s the baseline under the Labour Rules. Companies sometimes pay festival bonus as a fixed amount rather than tying it to basic salary, but that’s a policy choice, not the legal minimum. We cover this in more depth in our guide to festival bonus calculation in Bangladesh.
Provident Fund and Salary Calculation
Provident fund sits outside the monthly salary calculation but directly affects net pay every month it applies. The employee’s 7 to 8 percent contribution is deducted from basic salary, the employer matches it, and both amounts accumulate in a trust fund managed by a joint board of employer and employee representatives, as required under Section 264(5) of the Act.
It’s not a pension, and it’s not automatic. Only permanent employees with at least a year of service are eligible under the statutory minimum, though a company can offer it earlier as a benefit. Read the full mechanics in how provident fund is calculated in Bangladesh.
Salary Calculation for Different Types of Employees
Monthly salaried employees: The structure above applies directly: basic, allowances, overtime, deductions, net.
Daily-rated employees: Pay is calculated per day worked rather than a fixed monthly figure, using the daily basic wage as the base for any overtime.
Factory and garment workers: Minimum wage for RMG workers currently stands at Tk 12,500 a month. Overtime and festival bonus rules apply the same way, but attendance tracking tends to matter more given shift patterns and extended-hours periods. Our HRMS for garments and RMG page covers sector-specific setup.
Office employees: Usually the most straightforward case: fixed monthly salary, standard allowances, occasional overtime.
Field employees: Salary calculation here often ties into a field attendance system, since attendance for staff who aren’t at a fixed location needs its own tracking method before payroll can run.
Salary Calculation vs. Payroll Processing
These two get used interchangeably, but they’re not the same thing. Salary calculation is the arithmetic: working out what an employee should be paid this month. Payroll processing is everything around that arithmetic: pulling attendance and leave data, applying the correct salary structure, computing overtime and deductions, generating payslips, filing tax withholding, and keeping records for compliance.
A company with five employees can do salary calculation on a spreadsheet. A company with five hundred usually can’t do payroll processing that way without something breaking every month. That’s the gap payroll management software is built to close.
Salary Sheet Example
A salary sheet is the document that summarizes all of this for every employee in a pay period.
| Employee | Basic | Allowances | OT | Gross | PF | Tax | Other Deduction | Net |
|---|---|---|---|---|---|---|---|---|
| Rahim | 20,000 | 15,000 | 1,923 | 35,000 | 1,500 | 0 | 0 | 35,423 |
| Karim | 25,000 | 18,000 | 0 | 43,000 | 1,875 | 500 | 0 | 40,625 |
The columns stay the same regardless of company size; what changes is how much manual work it takes to fill them in accurately every month. That’s where PF and payslip management tools save the most time, since they carry forward attendance and provident fund figures automatically instead of someone re-entering them.
How HRMS Software Automates Salary Calculation
Once a company’s salary structure is properly defined, the actual monthly calculation doesn’t need to be redone by hand.
Salary structure setup: Basic pay, allowance rules, whether they’re fixed or percentage-based, and effective dates for changes all get configured once through salary scale setup, and every subsequent payroll run pulls from it automatically.
Payroll calculation: Attendance, leave, and salary structure data combine automatically to produce gross and net figures without manual formula work each month.
PF and payslip generation: Provident fund deductions and payslips generate directly from the same underlying data, cutting out duplicate data entry.
Attendance and overtime: Systems that track attendance and overtime directly feed those hours into salary calculation instead of someone manually transferring numbers from a register.
The point isn’t to replace understanding how salary calculation works. It’s to stop redoing the same arithmetic by hand every single month once the rules are set.
Frequently Asked Questions
How is salary calculated in Bangladesh? Add basic salary, allowances, and extra earnings like overtime, then subtract deductions such as provident fund, tax, or unpaid leave, to get net salary. The exact components depend on the employer’s salary structure.
What is the formula for calculating monthly salary? Gross salary equals basic salary plus allowances. Net salary equals gross salary plus overtime and other earnings, minus deductions.
What is the difference between basic and gross salary? Basic salary is one fixed component. Gross salary is basic plus all allowances, before any deductions.
How is net salary calculated? Take gross salary, add any overtime or extra earnings, then subtract provident fund, tax, and other applicable deductions.
Is salary structure the same for every private company in Bangladesh? No. The Labour Act sets minimum protections around things like overtime and provident fund, but doesn’t mandate one universal salary structure for every private employer.
How does overtime affect monthly salary? Overtime is paid at twice the ordinary basic hourly rate under Section 108 of the Labour Act, calculated by dividing basic salary by 208 standard monthly hours.
Is provident fund deducted from salary? Yes, for permanent employees with at least a year of service and enrolled in a company scheme, typically 7 to 8 percent of basic salary, matched by the employer.
How is festival bonus calculated? Workers with a year or more of continuous service get two festival bonuses a year, each equal to one month’s basic salary.
What deductions can be made from salary? Provident fund, income tax, unpaid leave, loan or advance recovery, and a limited set of other lawful deductions under the Labour Act.
Can HRMS software automate salary calculation? Yes, once a company’s salary structure and attendance data are set up, payroll software can calculate gross, overtime, deductions, and net salary automatically each month.